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After combining a) NPD Weekly data with b) Monthly channel breakout, c) SportscanINFO apparel POS and d) our SIGMA analysis,  we’re taking up our estimates for FL and FINL.  Here are some callouts…

For starters, the bifurcation between the athletic specialty channel and the shoe chain and natn’l/department store channels continues to be at least eight-point wide. This indicates that weekly trends (that people trade on) are significantly understating relative performance in the athletic specialty channel. Case in point, athletic specialty was up +6.4% for the month substantially outperforming the broader index up only +1.5%. We saw this trend begin in January – and have another 6 months before we have to think about ‘comping the comp.’

With sales coming in stronger than expected against considerably tougher compares in conjunction with company specific factors, we are taking our estimates up for both FL (comps up to 9% from 7% and EPS to $0.16 from $0.12 for Q2) and at FINL (comps up to 7.5% from 5% and EPS to $0.26 from $0.23). Our FL estimates remain well above the Street at $0.11 due to tight inventory management and clear progress underway with both merchandising and marketing initiatives in light of a strong first month of the quarter. It’s worth noting that despite taking up our FINL estimates for the quarter ended in May, we are below the Street ($0.29E) due to higher investment spending as the company completes several initiatives embarked on in 2010 and greater exposure to toning relative to FL that will weigh on results.  

Here are some of the additional highlights:

  • ASPs turned lower in May across all three channels. Two important factors to keep in mind here are 1) as we highlighted in our post “Athletic Apparel Remains Strong – FW Choppy” on 5/30, the decline of the toning category is having a profound effect on ASP trends to the tune of 3%-5%, and 2) ASPs grew mid-single-digits in the first week of June the strongest increase since March implying a positive incremental move for margins.
  • Sales in the athletic specialty channel increased +6.4% outperforming both shoe chain (-2.1%) and dept./natn’l chain store channels  (-8.5%). Despite a also sequential deceleration across all three channels, the positive spread between athletic specialty and the other two channels remains at least eight-points wide.
  • In the athletic specialty channel, running continues to be not only the largest, but also fastest growing primary category for the fifth month in a row.
  • Growth in running has been fueled largely by new Reebok (RealFlex and Zig Pulse) and Adidas (Climacool) introductions as well as the latest generation of Nike AirMax and Free styles. Share gains by Reebok and Adidas continues to come primarily at the expense of Puma and New Balance. However, in an uncharacteristic shift Nike conceded -173bps of share in the running category as well. Adidas/Reebok is clearly raising the competitive bar in this category, a development we’ll be watching closely in a category that Nike dominates with nearly 50% share. By comparison, Adi/Reebok has only 15% share.
  • Share gains by both Nike and Adidas in aggregate are among the key brand callouts due in part to contraction in the toning category. Interestingly, while Adidas has gained its share almost entirely in the athletic specialty channel, Nike has gained most of its share in the shoe chain and natn’l/department store channels over the last four months. It’s worth noting that Nike is not losing share in the key athletic specialty channel, but it’s not gaining it either. On the other hand, Adidas/Reebok appears to be taking greater share from the smaller fragmented brand set.
  • Converse posted its second month of positive sales growth in a year last month and its second consecutive month of share gain, which starts a stretch of considerably easier compares for the brand.
  • Reebok trends reflect the most dynamic shift in portfolio mix of any footwear brand over the last few years. What jumps off the page in looking at the brand’s trends is the volatility between sales, units, and ASPs. The resurgence of sales in 2010 was entirely driven by toning, which also took ASPs higher. However, since year-end ASPs have come down while sales have remained relatively stable on higher unit growth. Contrary to its toning counterpart that has been losing ~300bps of share on a monthly basis, Reebok as maintained positive share gains driven by a shift to new lower cost running product, which continues to drive recent brand momentum.

Taking up FL and FINL Estimates  - FW Mo Table 1 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktShr Table 6 11

 

Taking up FL and FINL Estimates  - FW Mo by Cat 6 11

 

Taking up FL and FINL Estimates  - FW Mo Cat Athl 6 11

 

Taking up FL and FINL Estimates  - FW Mo Running 6 11

 

Taking up FL and FINL Estimates  - FW Mo ASPs 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktSh 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktShr Agg NKE 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktShr NKE 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktShr ADI 6 11

 

Taking up FL and FINL Estimates  - FW Mo Reeb 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktShr SKX 6 11

 

Taking up FL and FINL Estimates  - FW Mo MktShr Puma 6 11

Casey Flavin

Director